Missed Opportunities for Married Couples Trying to Save
We work with a lot of couples to help them plan for their long term goals. In some cases, we work with couples who keep their financial lives separate. Often this is the case with newlyweds who have yet to combine accounts and are not quite comfortable sharing all of their financial details with their spouse yet. It can even be the case with couples in their 50s and 60s who have kept separate accounts for many years.
In any case, planning for your financial future together is essential. Not only because financial issues are one of the leading causes of fighting in relationships, but also because planning separately can lead to significant missed opportunities that can negatively impact your wealth.
Below we list some of the common missed opportunities when married couples fail to take a holistic view of their financial picture:
Best Use of Retirement Contributions
If both spouses are employed, it is important to evaluate the retirement plans available from each employer. One may have a more generous match or very high costs. If you are not able to maximize contributions to all accounts yet, then it may make sense to fund one plan to a higher extent than the other. Investment choices are also fairly limited in employer sponsored plans, so one plan may have a great foreign choice while the other has low cost index funds or a generous fixed account. Looking at the whole picture together can allow you to build a more balanced portfolio while taking advantage of efficiencies that can boost your long term net worth.
Double Roth IRAs
Roth IRAs are the gold standard of savings accounts. Contributions go in after tax, growth is tax free, and withdrawals are completely tax free in retirement. You can also always withdraw your contributions tax and penalty free. This makes them a great tool for college savings and as back up emergency funds. However, in order to be eligible to contribute your AGI has to be <$184-194k for Married Filing Joint couples. In many cases we find that increasing retirement contributions a few percentage points, taking advantage of an HSA, FSA, or deferred compensation plan will bring a couple into eligibility for this valuable savings tool.
In some cases, when one spouse earns less than the other they can feel like they are not “contributing to the household” as much when their retirement contributions go up since their take home pay goes down. However, increasing retirement contributions in order to make Roth IRA contributions will have a net positive effect on their net worth. This is a very powerful tool to improve your long term financial situation.
Access to a 457 Plan
In the same vein as retirement contributions, certain employers (state or local government or tax-exempt organizations) offer access to a 457 plan for retirement. These plans are unique in that contributions to 457 plans are not classified as salary deferrals by the IRS. Therefore, if you participate in a 403b or 401k plan and a 457 plan you can contribute $18k to the 401k or 403b AND $18k to the 457 for a total of $36k pre-tax retirement contributions in one year ($24k/$48k for those over age 50). This can lead to a huge reduction in taxes now and put your retirement plan into hyper drive.
The problem is, most state and government workers, besides doctors and lawyers, don’t make enough money to defer that much toward retirement. But, they might have a spouse who makes a higher income. This might allow the lower earning spouse to defer the majority of their salary toward retirement pre-tax while the other spouse’s income supports the day to day expenses. For super savers, this may also bring you into Roth IRA eligibility, a savings trifecta.
So far we have discussed retirement contributions that can decrease your taxable income. There are also tax benefits that come with being married like writing off one spouse’s business losses on the joint tax return and leaving assets tax free to your spouse at death.
We all know that life insurance is necessary for young couples raising a family, particularly on the primary wage earner. It may also be important to hold a policy on a spouse who stays home with young children, since a premature death could necessitate additional expenses for the surviving spouse. Later in life insurance can also be used to allow for a higher lifetime payout from a company pension. In most cases pensions are offered with multiple choices for survivor benefits. These all come at a cost of course and if the pensioner is relatively healthy, holding a life insurance policy for present value of the income stream may be a cheaper option.
Social Security Claiming Strategies
Last but certainly not least is Social Security. This is definitely a financial decision you want to make as a couple. About a third of people claim benefits at age 62, but in many cases this leaves a lot of money on the table, particularly if there is an age difference between spouses. If one spouse has a longer life expectancy than the other, it may make sense for the higher earning spouse to delaying claiming benefits until age 70. This would allow the surviving spouse to receive that higher benefit over the course of their lifetime.
Social Security is also an important consideration for divorced spouses. If you were married for more than 10 years and never remarried, you are still eligible for benefits based on your spouse’s earnings history. This may be more beneficial than receiving your own benefits. You are also eligible to receive your ex-spouse’s full benefit upon their death. This is a benefit you do not want to miss out on.
Are Your Clients Failing to Plan for the Costs of Long-Term Care?
Written by: Matthew Paine
It’s been a tough few years in my family. My mother has been battling cancer for what feels like forever, and while she’s been managing her health with diet and exercise for some time, a few months ago everything changed. Her cancer had become aggressive, and chemo, which she had dreaded, was suddenly the only real option. My mother is in her late 70s, so the already brutal side effects of chemo resulted in a prolonged hospital stay that is currently at four weeks and counting. The good news is that she’s mentally strong, and she’s battling like a lion.
My dad is another story. Suffering from early-onset dementia, his ability to understand what’s happening and why my mother isn’t at home shifts from day to day. Because he’s unable to drive or care for himself (at least predictably), my siblings and I have been juggling taking care of him ourselves. It’s not an easy task, especially with jobs, children, and lives of our own to manage as well.
Like many families, none of us—my mother, my father, my siblings or myself—saw our current dilemma coming our way. Clearly we should have. My mother hasn’t been in top health for years. My dad’s condition is sure to get worse. And even if both of them were in perfect health, their age alone should have driven us to communicate better, earlier, and smarter. Despite being in the financial services industry myself, I haven’t been involved in my parents’ finances. I know they saved well for retirement, but I don’t know where they stand financially today. I don’t know what or how much insurance coverage they have. I have no idea how they plan to pay for their long-term care—or if there even is a plan.
The situation is forcing our family to get personal—and fast. Despite being careful about nearly every other aspect of our family’s financial lives, this one slipped through the cracks. We failed to plan.
Just like cancer and dementia, this failure to plan is an epidemic. And it’s only getting worse. To help your clients battle this epidemic, it’s vital that planning for long-term care become an intrinsic part of your retirement planning process. Here’s why:
Retirement planning alone isn’t sufficient.
We’ve all seen it. A client has a great retirement plan in place, and suddenly life throws an unexpected curveball. The later in life your clients get, the more likely that curveball will be the need for long-term care. According to the National Center on Caregiving, the number of people needing long-term care will hit a shocking 27 million by 2050. And according to the AARP, one in four people age 45 and over are not prepared financially if they suddenly required long-term care for an indefinite period of time. That statistic alone tells us that our efforts at planning are failing.
Long-term care costs are escalating rapidly.
According to a 2016 survey from Genworth Financial, a private nursing home room costs just over $92,000—about $7,698 a month—which is 19% more than it cost for the same care in 2011. According to the AARP Public Policy Institute, lost income and benefits over a caregiver's lifetime is estimated to range from a total of $283,716 for men to $324,044 for women, or an average of $303,880—and less than 10% of that care is expected to be covered by private insurance.
Medicaid isn’t the answer.
Many people assume that public programs are the answer to long-term care, but in the case of Medicaid, a program designed to assist the poor, it is a last resort. First, while nearly everyone over age 65 has Medicare coverage, that program doesn’t cover long-term stays. That means that many people who need that coverage are forced to spend down their assets until they qualify for Medicaid. How poor must a patient be to receive benefits? In order to be eligible for Medicaid benefits, a nursing home resident may have no more than $2,000 in "countable" assets, and the patient’s spouse—called the "community spouse"—is limited to one half of the couple's joint assets up to $119,220 (in 2016) in "countable" assets. The result: even a couple who has spent a lifetime saving for a comfortable retirement can be forced to draw down nearly all of their assets before qualifying for Medicaid.
Once on Medicaid, long-term care patients lose the one thing many seniors care about most: choice. As a recipient of public assistance, patients rarely have a say in where they receive care. Whether that means being placed far from family, in a less-than-desirable facility, or even in a facility that lacks certain types of care (such as a dementia unit or other specialized care), the patient is at the whim of the state.
The good news is that even for those who feel there’s no light at the end of the tunnel, there are options that can help seniors who are struggling to pay for their post-retirement care to not only cover those rising expenses, but to do so in a way that gives them the freedom of choice. A Veteran myself, I know that VA Benefits are highly underutilized—including long-term care benefits. You can learn more about these benefits here. As well, the National Association of Insurance Commissioners (NAIC)’s July report Private Market Options for Financing Long-Term Care Services offers a variety of options for helping finance long-term care needs. Included in that list is the use of life insurance policies to help to fund long-term care expenses—an approach that is supported by GWG Life’s LifeCare Xchange Program.
In my own situation, I know there’s a high likelihood that my dad will eventually require skilled nursing care. I hope that as my siblings and I begin to dig into the details of my parents’ estate, we’ll find that they have indeed planned for long-term care. If that’s not the case, I’m comforted to know there are options available to help ensure Dad is not only in a facility that can meet his specialized needs, but that his new home is where our family chooses for him to be. Life may throw its curveballs, but at least Dad’s care will count as a home run.
Matthew Paine is Senior Vice President at GWG Holdings. Mr. Paine started his financial services career with AXA Advisors, developing marketing strategies for the North Central Region and building his personal practice. Since 2008, he has lead sales teams in raising capital in various assets classes ranging from the Life Insurance Secondary Market, Multi-Family Real Estate, Conservation Easements, and MBS Hedge Funds/Fund of Funds. Mr. Paine has a BA in Marketing/Management from the University of St. Thomas in St. Paul, MN and holds FINRA Series 7, 24 and Series 63 licenses through Emerson Equity, LLC. Member FINRA/SIPC.
- 1 of 1654